Economy Could Hurt Wireless Sale

The head of the Federal Communications Commission expressed concern on Tuesday that the credit crunch could hinder bidders in an upcoming government auction of wireless airwaves.

FCC Chairman Kevin Martin said during a news briefing that he was "concerned that the overall economic conditions could end up impacting the auction."

"Is it an ideal time to necessarily be conducting an auction? I'm not so sure," Martin said.

Martin's comments came less than a week after a key potential bidder called Frontline Wireless dropped out of the wireless spectrum auction.

The auction is scheduled to begin on January 24 and has been expected to raise at least $10 billion for the U.S. government from airwaves being returned by television broadcasters as they move to digital from analog signals in early 2009.

The auction comes at a time when a meltdown in the U.S. housing and subprime mortgage markets has severely pinched the ability of companies to raise capital.

Martin said the auction must go forward since Congress has ordered the FCC to begin the auction by January 28. "We're required by law to conduct the auction at this time, so we'll go forward with it no matter what."

Potential bidders in the auction include U.S. wireless providers AT&T and Verizon Wireless, a joint venture of Verizon Communications and Vodafone Group, as well as Internet company Google, ventures involving EchoStar Communications, Cablevision, Qualcomm and Microsoft co-founder Paul Allen.

The 700-megahertz signals are valuable because they can go long distances and penetrate thick walls. The auction is seen as a last opportunity for a new player to enter the wireless market.

The spectrum is to be auctioned off in several different blocks, ranging from smaller regional chunks to large, nationwide ones.

Stifel Nicolaus analyst Rebecca Arbogast said the credit crunch does not affect large carriers such as AT&T and Verizon and other big companies, which have other ways of raising money for the auction.

But for some other bidders, she said, it raises an added hurdle. "It's always hard. It becomes harder when there's a credit crunch," Arbogast told Reuters.

Frontline had planned to bid on a particular block of spectrum in the auction, known as the D block, which was subject to an FCC condition requiring the winning bidder to build out a national network and share it with public safety agencies.

Frontline has declined to elaborate on the pull-out, except to say that the company had closed its doors. However, Arbogast said it had most likely been caused by a lack of financing.

Arbogast said there was no way to know if Frontline would still be in the auction had it not been for the credit crunch.

"It certainly would have been a more hospitable environment," without the economic problems, Arbogast said.

Arbogast said Martin may be worried that auction bids could fall short of the minimum $1.3 billion "reserve" price set by the FCC, particularly when it comes to the D block that had been targeted by Frontline.